Thursday, June 26, 2014

In general, economic sanctions
against one nation by another nation (or, in this case, a group of nations) are
a political tool that is used to weaken the target nation and/or its leadership. The motives
behind the sanctions are to punish, deter and eventually rehabilitate the
nation that is the subject of the sanctions. This is viewed as a
non-military way to put an end to what is viewed as unacceptable behaviour.
By imposing the sanctions, it is hoped that the actions taken will do one
or more of the following:

1.) deprive the target nation of
access to foreign markets and foreign currencies.

2.) by depriving the target nation
of certain goods and services, the target nation will have to pay more for
substitute goods and services.

3.) by imposing financial sanctions
(i.e. restricting aid, loans etcetera), the target nation may find that the
interest rates on borrowing rise or that borrowed money is harder to access.

Trade sanctions generally have a
strong negative impact on the target country's population, however, they may
benefit the elites in the target nation who control access to goods through the
black market. Financial sanctions are more likely to negatively impact
the target nation's political leadership. Through all three of these
mechanisms, it is hoped that the citizens of the target nation will rise up
and, either peacefully through the ballot or violently through the use of
demonstrations, overthrow their leadership, putting an end to the unacceptable
behaviour.

The EU, Canada and the United States
have been busily imposing what would be considered a rather toothless set of
sanctions against certain individuals and enterprises in Russia in response to
what they deem unacceptable behaviour by Russia in Ukraine.

I was recently on a trip to Russia.
While there, I noticed the following:

You'll notice that other than the
Cyrillic lettering on the signs, the logos are quite recognizable to most of us
that live in an advanced economy where there is a Starbucks or McDonalds on what
seems to be every other street corner.

While in Russia, I also noticed
streets full of vehicles manufactured by the major car manufacturing companies
of Japan, the United States, Korea, the United Kingdom and Germany. In
fact, the streets of Moscow and St. Petersburg are positively overflowing
with foreign-made/foreign-sourced vehicles. Gone are the days of the Skoda and the Lada.

Let's go back to the American fast
food/coffee house industry, both of which are strongly represented in urban
Russia, for a moment. From Open Secrets, here is a graph showing how much McDonald's
Corp. PAC spent on each election cycle since 1990:

In the 2014 cycle, so far,
McDonald's Corp. PAC has spent $635,468. In the 2012 cycle, McDonald's
Corp. PAC spent $777,652, 59 percent of which went to Republican candidates.

It would appear that Burger King
thinks that it gets more political "bang for its buck" by lobbying
rather than by directly assisting candidates during an election cycle.

In total, the food and beverage
industry spent $30.35 million on lobbying in 2013, down from
a record $57.716 million in 2009. In 2013, McDonald's was the third
highest spender on lobbying after Coca-Cola and Pepsico (both of which are also in Russia) with Starbucks Corp. coming in fifth place.

According to McDonald's full year 2013 results, their fourth quarter
2013 sales in the United States declined by 1.4 percent and sales in the
Pacific/Asia/Middle East Region dropped by 2.4 percent on a quarter-over-quarter
basis. On the other hand, sales in Europe rose by 1 percent for the
fourth quarter, largely thanks to increased sales strength in the United
Kingdom, France and Russia. These three countries accounted for 67
percent of the company's European revenues and the company notes that its
operations in Russia are in an expansion mode. Starbucks' 2013 Annual Report notes that they
have 65 stores in Russia; while this is a tiny fraction of their total of 1116
stores in Europe and the Middle East, Starbucks is planning to expand into the
southern part of Russia.

Now, let's put all of this together.
Given that American companies are firmly entrenched in the post-Communist pro-profit Russia and that they are firmly entrenched in the American political system
through both political contributions and lobbying, surely, they are using some
of their political clout to prevent the Obama Administration from effectively
imposing any sanctions against Russia that may interfere with their ongoing
business plans and profits? With the intertwining nature of the global economy today, one can't help but shoot oneself in the foot when imposing tough and meaningful economic sanctions on another nation. While the sanctions against Russia, at some point, may impact the
Russian man/woman on the street, those who are at the top of the oligarchy food chain are still
driving (or being driven) around the streets of Moscow in their Bentleys, Range
Rovers and Ferraris and not really caring about the impact of sanctions.

2 comments:

I agree, I saw the same thing when I was in Russia. Putin holds all the cards and control of natural gas flowing to Europe trumps all. Allowing events to deteriorate into a major war or possibly into what some see as World War III is becoming a reality.

As insane as it appears this could become the final outcome. The location of this as a military confrontation is right in Putin's backyard and this is a strong advantage for Russia. It is silly to think Putin and Russia will back down. This means poking the bear is not a smart move. More on this subject in the article below.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.